EBay's Allure Is Going, Going, Gone

Bargain hunters may think it makes good financial sense to turn to eBay's (EBAY) vast marketplace for their holiday shopping this year. But when it comes to deals, they may be disappointed. The selling equation at eBay is changing -- and not necessarily in a way that helps shoppers save.

Though eBay gained fame as an auction site where anyone with a PC could sell the clutter from their grandmother’s attic to a nationwide audience, things are much different now. Merchants on eBay are larger and, in many cases, drown out smaller sellers. Higher fees for some transactions are being passed along to buyers. And in perhaps the biggest shift of all, the auctions that made eBay famous are increasingly being supplanted by "Buy it Now" fixed pricing.

One of the biggest issues, for buyers and mom-and-pop sellers alike, is that eBay is increasingly being dominated by large merchants -- especially since fee hikes, including the most recent big hike (on final value fees) last February, caused some little-guy sellers to defect to other sites. The volume pricing offered by larger merchants allows shoppers to nab good deals on items like Blu-ray DVDs. But experts and veteran eBay shoppers say that when it comes to items like collectibles typically offered by smaller merchants, the deals often aren’t there. They say buyers need to go elsewhere to find the best deals, namely other marketplace sites like eCrater, which is free, and Bonanzle which charges lower fees.

“We are finding that [certain sellers] are offering different pricing on different sites,” says David Steiner, president of EveryPlaceISell.com, a directory of online marketplaces. Based on conversations with eBay sellers, as well as his own personal observations, Steiner estimates that shoppers buying unique goods with a fixed price on eBay end up paying between 10% and 20% more for an item than they did in the past.

What's behind all of these changes? To better compete with Amazon.com's (AMZN) success at bringing other merchants under its umbrella, eBay is ratcheting down the auction approach it pioneered in favor of more Buy it Now transactions where items are sold at a fixed price. According to eBay's latest earnings results, 46% of its gross merchandise was sold in Buy it Now transactions during the third quarter -- up from 37% just two years ago.

Not only are there more Buy it Now items, but these items also tend to get more visibility on eBay's site, thanks to a new search function that favors high-volume merchants selling a lot of the same goods like DVDs or digital cameras, says Ina Steiner, editor of AuctionBytes.com, an ecommerce information web site. Usher Lieberman, a spokesman for eBay, says the new search algorithm does allow buyers to see a mix of Buy it Now and auction listings, however the items that sell the most get increased exposure in search results since they are most relevant to buyers.

That means merchandise from Diamond PowerSellers (merchants who sell $500,000 worth of merchandise a month and have a detailed seller feedback rating of at least 4.8 stars -- out of 5 -- across all categories) like Buy.com is popping up higher in eBay's search rankings. Meanwhile, items from mom-and-pop sellers are falling further down, especially when they use the auction format, says AuctionBytes' Steiner. All this makes it harder for shoppers to find auctions where they could potentially snag a bargain on a less common item.

Buy it Now isn't necessarily a bad deal, but it can be when a shopper is buying from a smaller merchant who is getting squeezed by eBay’s fees. Franci Neale, an eBay PowerSeller who owns antiques web site JustOnceOnline.com, confirms that she and many other Buy it Now sellers (excluding merchants who sell new items like consumer electronics) are inflating prices to help offset fees. And there are a lot of fees to pass along. “Each year [eBay has] increased pricing,” says AuctionBytes.com’s Steiner. With an auction, it’s harder for sellers to pass along those fees since they often list an item at $1 and the market sets the final price, says Marianne Dow, owner of Ms. Dow Antiques, who sells antiques on eBay. While auction sellers could try to pad their shipping and handling costs, it could make their item less attractive for buyers to bid on, she says.

A number of different factors go into a seller’s basic overhead so the final costs will vary somewhat. (Sellers can also spend more on add-on features like picture hosting and a border to make their listing stand out.) Let’s say you're eyeing a pair of antique cufflinks, which are being offered for $100 in a Buy it Now transaction. The seller already paid 35 cents to list the cufflinks for 30 days, and will pay eBay another $10.50, or 10.5% (12% of the initial $50, plus 9% of the remaining $50) of the purchase price when you buy it. If those same cufflinks were sold at auction, the seller would have only paid $5.17, or a little more than 5%, in listing and final value fees. (Click here for a more detailed breakdown of the fee structure).

And since eBay merchants are no longer allowed to accept checks and money orders as of Oct. 20, they also have to pay a fee for customers who make electronic payments. If they accept PayPal (which is owned by eBay), they're charged 1.9% to 2.9% of the final sale price, plus 30 cents per transaction. So the total fee on those cufflinks has now jumped to $14.05, or 14%.

One last pitfall that shoppers face when using Buy it Now is the ease with which they can buy an item, which can prevent them from doing their research or thinking as carefully about the purchase as they would when they're competitively bidding. (Bidding has its own downside as well -- economists say consumers can get caught up in the thrill of the auction and spend more than the item’s intrinsic value.)

EBay says that despite the changes on its side it remains a competitive marketplace and adds that many of its new items sell for 30% less than retail. And, the company says, holiday shoppers could get an additional 30% off some gifts when they take advantage of a Microsoft Live Search cash back offer. “With the recent downturn, we’re seeing a fair number of our sellers getting access to increased inventory they might not have seen before, with better prices than before, translating in better prices for buyers," says eBay’s Lieberman.

How to find the best prices on collectibles, used and unusual items this holiday season.

* Don’t limit your search just to eBay. Try Googlebase.com or click on the shopping tab on the search engine’s web site, which searches across multiple online marketplaces.

* Add a “.com” to the eBay seller’s ID and see if he has his own web site and if he offers a better deal there. Shoppers can also type that ID name into EveryPlaceISell.com to seek out other sites where the seller lists their goods.

* Check out alternative online marketplace sites like eCrater, Bonanzle, and Etsy for discounts of up to 10% to 20%. For auctions, check out eBid.com.

* Finally, if you come across a Buy it Now item with a steep asking price, email the seller and make a lower offer, says Ms. Dow Antiques’ Dow.